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Chapter 7: 6E (page 365)

Presented below is information from Perez Computers Incorporated.

July 1 Sold \(20,000 of computers to Robertson Company with terms 3/15, n/60. Perez uses the gross method to record cash discounts. Perez estimates allowances of \)1,300 will be honored on these sales.

10 Perez received payment from Robertson for the full amount owed from the July transactions.

17 Sold $200,000 in computers and peripherals to The Clark Store with terms of 2/10, n/30.

30 The Clark Store paid Perez for its purchase of July 17.

Instructions

Prepare the necessary journal entries for Perez Computers.

Short Answer

Expert verified

Debit and credit columns of journal totals$440,000.

Step by step solution

01

Definition of Gross Method

A method used to record journal entry for goods sold on cash discount terms, under which gross amount of sales is reported, is known as gross method. Under this method, discount is accounted for separately when a cash payment is received.

02

Journal entries

Date

Accounts and Explanation

Debit $

Credit $

July 1

Accounts receivables

$20,000

Sales

$20,000

(To record the credit sales made by the business entity)

July 10

Cash

$19,400

Discount allowed

$600

Accounts receivables

$20,000

(To record the cash received from receivables)

July 17

Accounts receivables

$200,000

Sales revenue

$200,000

(To record the sales made on account)

July 30

Cash

$200,000

Accounts receivables

$200,000

(To record the cash received from receivables)

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Most popular questions from this chapter

Which of the following statements is true?

(a) The fair value option requires that some types of financial instruments be recorded at fair value.

(b) The fair value option requires that all noncurrent financial instruments be recorded at amortized cost.

(c) The fair value option allows, but does not require, that some types of financial instruments be recorded at fair value.

(d) The FASB and IASB would like to reduce the reliance on fair value accounting for financial instruments in the future.

(Notes Receivable Journal Entries) On December 31, 2017, Oakbrook Inc. rendered services to Beghun Corporation at an agreed price of \(102,049, accepting \)40,000 down and agreeing to accept the balance in four equal installments of $20,000 receivable each December 31. An assumed interest rate of 11% is imputed.

Instructions

Prepare the entries that would be recorded by Oakbrook Inc. for the sale and the receipts and interest on the following dates (prepare an amortization schedule). (Assume that the effective-interest method is used for amortization purposes.)

(a) December 31, 2017.

(b) December 31, 2018.

(c) December 31, 2019.

(d) December 31, 2020.

(e) December 31, 2021.

On June 3, Arnold Company sold to Chester Company merchandise having a sale price of \(3,000 with terms of 2/10, n/60, f.o.b. shipping point. An invoice totaling \)90, terms n/30, was received by Chester on June 8 from John Booth Transport Service for the freight cost. On June 12, the company received a check for the balance due from Chester Company

Instructions

(a) Prepare journal entries on the Arnold Company books to record all the events noted above under each of the following bases.

(1) Sales and receivables are entered at gross selling price.

(2) Sales and receivables are entered at net of cash discounts.

(b) Prepare the journal entry under basis 2, assuming that Chester Company did not remit payment until July 29.

Use the information presented in BE7-12 for Arness Woodcrafters but assume that the recourse liability has a fair value of \(4,000, instead of \)8,000. Prepare the journal entry and discuss the effects of this change in the value of the recourse liability on Arness鈥檚 financial statements.

(Assigning Accounts Receivable) On April 1, 2017, Rasheed Company assigns \(400,000 of its accounts receivable to the Third National Bank as collateral for a \)200,000 loan due July 1, 2017. The assignment agreement calls for Rasheed to continue to collect the receivables. Third National Bank assesses a finance charge of 2% of the accounts receivable, and interest on the loan is 10% (a realistic rate of interest for a note of this type).

Instructions

(a) Prepare the April 1, 2017, journal entry for Rasheed Company.

(b) Prepare the journal entry for Rasheed鈥檚 collection of $350,000 of the accounts receivable during the period from April 1, 2017, through June 30, 2017.

(c) On July 1, 2017, Rasheed paid Third National all that was due from the loan it secured on April 1, 2017. Prepare the journal entry to record this payment.
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